How to sell ecosystem services: a guide for designing new markets

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Abstract

Payments for ecosystem services (PES) can improve environmental quality by aligning the incentives of individual landowners with societal interests in providing valuable ecosystem services such as carbon storage, water quality, flood control, and wildlife habitat. However, for this potential to be realized, many institutional details and technical challenges must be addressed. In this review, we discuss six critical issues for creating effective PES markets: using the appropriate type of market institution, defining suitable spatial and temporal scales for the market, promoting additionality (avoiding payments for services that would have been provided even in the absence of payments) so that payments result in increased services, offering incentives for projects that generate multiple ecosystem services, considering practice-based versus performance-based payments, and eliminating opportunities for strategic behavior aimed at “gaming the system”. We illustrate these issues with an example of how PES could be applied to floodplain restoration.

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